Indian shares came under heavy selling pressure as uncertainty over the fate of the Indian coalition government continued to worry investors.

The media continues to speculate whether the ruling Congress Party will be able to push through a much-debated Indo-U.S. nuclear deal and still retain its power, in the face of heavy opposition from its key communist allies.

Investors, already spooked by the macroeconomic burden imposed by high inflation and the global credit crunch, are unable to swallow political uncertainty at this time, as opposed to a more bullish era when they could have afforded to overlook political news in favour of the robust outlook for corporate earnings.

'Investor confidence is at a low, as the market is flooded with all kinds of negative news flow, primarily related to political and macroeconomic front,' said VVLN Sastry, chief executive of First Call India Equity Advisors.

India's benchmark stock index, the Bombay Stock Exchange Sensex, slipped below below 14,000 in intra-day trade before closing 186.74 points or 1.31 percent down at 14,106.58. The broad based S&P CNX Nifty of the National Stock Exchange closed 75.30 points or 1.76 percent lower at 4,191.10. Both indices hit lows not seen since August last year by the end of trade.

The markets turned negative after gaining marginally in initial trades.

The Sensex has shed 6766.75 points since January, when it hit an all-time high of 20,873.33, while the Nifty has shed 2,166 points from the all-time high hit in January.

Sastry believes the Sensex has already bottomed-out and will not go below 14,000.

INFLATION TOO UNSETTLING INVESTORS

The latest inflation figures, to be released at noon on Friday, are creating jitters in the participants. Data released last week showed that wholesale price inflation rose to a 13-year high of 11.05 percent for the week ended June 7 from 8.75 percent a week earlier. The data sent the stock market sharply lower.

In addition, this week Reserve Bank of India governor YV Reddy said the current highs in world energy prices 'may not necessarily be (a) temporary' phenomenon and the RBI may have to build on the monetary actions taken earlier.

On June 11, the central bank hiked its repo rate -- the rate at which it lends money to banks -- by 25 basis points to 8 percent.

Sastry, however, believes said that a higher inflation figure has been factored in by the markets.

HDFC, RIL BUCK NEGATIVE TREND

Out of the Sensex-30 pack, there was one gainer for every 2.5 losers, while the broader market was bearish, with 71.11 percent out of 2,707 traded stocks ending lower.

Housing Development Finance Corp. however ended 2.32 percent higher at 2,266.20 rupees, while Sensex heavyweight Reliance Industries Ltd. rose 2.18 percent to close at 2,066.20 rupees.

Shares of RIL, India's most valuable company, had dropped below the key psychological mark of 2,000 rupees yesterday, fuelling widespread panic among traders who have so far viewed the stock as a golden goose in the current high oil price scenario.

Mid-cap stock Torrent Pharmaceutical Ltd. rose over 12.45 percent to end at 174.35 rupees, even after the company denied reports that its founders would sell a stake to Sun Pharmaceuticals.

Fast moving consumer goods giant Hindustan Unilever Ltd. fell 5.32 percent to 208.00 rupees.

Also down was state-owned Oil and Natural Gas Corp. Ltd., which shed 3.61 percent to end at 840 rupees.

India's biggest engineering firm Larsen & Toubro Ltd. shed 3.58 percent to trade at 2,290.10 rupees, while tech bellwether Infosys Technologies Ltd. fell 2.95 percent to 1,847.50.